ERP makes a comeback

1/15/2008 By: Melissa Houston and Patrick Goggins

from Technology & Learning

Notes from a Centralized Office

A renewed interest in ERP has school administrators reconsidering the vast business management systems they abandoned a few short years ago.

It used to be much easier to get paid by the San Diego Unified School District. A lot easier, that is, if you didn't work there.

Saddled with an antiquated computer system and manual, repetitive data entry of time cards, officials at California's second-largest school district discovered the payroll department was mistakenly issuing $1 million a year in paychecks to former and retired employees.

And the human resources department was in no shape to catch such a staggering oversight because employees were relying on a 30-year-old, mainframe-style computer system not compatible with other school departments—and one that required staff to regularly re-input information for the district's 20,000 employees.

How to fix the problem? SDUSD officials knew they had to start over.

Like other school systems across the nation plagued by overburdened and inadequate information technology, San Diego embarked on a complete overhaul of its computer network and data center. In 2002, officials there purchased a $26 million business management system, known as enterprise resource planning, or ERP, that handles all of the finance, HR, and payroll demands of the district's $1.1 billion–a-year operation.

Today, the SDUSD boasts a successful enterprise-wide system run by Oracle/PeopleSoft software that has reformed every aspect of its operations. But unlike other school systems across the nation that have attempted—and failed at—such projects, in San Diego, ERP works. "On the business side, this is the most important thing we've ever done," says Michael Casey, executive director and CTO of the 136,000-student San Diego School District. "What ERP brought was a disciplined approach to doing business. When you're running by a paperwork process, mistakes will be made."

May not be long before other schools choose to follow suit, emulating San Diego's model.

Indeed, ERP as an industry is expected to grow by as much as 11 percent in the next four years. And much of that growth can be credited to a renewed interest in schools countrywide looking to jettison their old "legacy" computer systems.These older systems, typically built piecemeal over time, using COBAL, are inadequate to handle the current crush of data generated by No Child Left Behind reporting mandates.

It seems ERP is back. And despite a shaky track record in both business and education, it just might work.

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Simple theory, vast system

Long a mainstay in manufacturing companies that could afford to invest in information technology, ERP is a valuable tool for those wanting to combine department functions.

The systems are massive (usually with millions of lines of computer code), but the theory behind them is quite simple. ERP is based on building a centralized network so that departments within an organization can share information housed on a single database.

For instance, instead of having separate programs written for specific functions in different departments such as HR and finance, ERP streamlines the entire operation with one multi-featured application software package.

Such systems, many of which are offered by SAP and Oracle/PeopleSoft, have certainly been popular at companies that process customer orders, where a single system tracks an order from placement through delivery.

When ERP works, it has saved companies a lot of money through improved efficiencies: redundancy is eliminated and employees can take advantage of ERP features that make it easy to track production schedules, to control inventory and purchasing, and to follow planned maintenance schedules. All steps that save money.

But many of the ERP projects underway in the late 1990s were notoriously difficult to implement and so riddled by cost overruns they were abandoned. According to a recent report in the Wall Street Journal, both Hershey Co. and Nike Inc. blamed faulty software for multi-million-dollar write-offs. And Hewlett-Packard Co. estimated it lost nearly $120 million when it couldn't respond to an order backlog caused by its new inventory system. "No one wanted to use the word ERP," industry analyst Lee Geishecker told the Journal. "For a while it was taboo."

ERP: expand and reduce

Like their business counterparts, schools walked away from their ERP projects. No question, the system was (and remains) a huge, upfront expense; for public schools that's taxpayer money, making the review and approval process difficult for those districts attempting to gain the necessary political support. And with the average tenure of a K–12 superintendent being a short six years, most projects lacked leadership and were never completed. In fact, of districts attempting to implement ERP in the past 10 years, half have failed.

"Fifty percent failure? Those are the ones that blatantly shut down," says Robert Bradford, an Atlanta-based ERP consultant with Capital Principles. "That percentage should be much higher when you think of the systems that are there but never got off the ground."

But executives across all industries haven't found a great alternative to ERP when it comes to automating business tasks. And buying separate applications makes your IT infrastructure hard to support and even harder to integrate.

One alternative approach to ERP is the "middleware" or "best of breed" applications. Certain schools, in fact, are opting for such software that "glues" together different applications. These cheaper middleware or best of breed solutions let those with smaller IT budgets make internal operations available via the Internet—without completely abandoning their existing systems. So popular have these middleware products become that in 2007 ERP giants like SAP and Oracle/PeopleSoft introduced their own versions, prompting industry observers to question if ERP was nearing its end.

ERP: efficiencies

Despite the popularity of such middleware solutions for budget-strapped institutions, schools and districts that have made serious monetary and training commitments to total ERP packages swear by the results. It took San Diego 11 months to replace its old system. Implementation was completed in 2004 and since, school officials document they have:

  • Reduced by 50 percent the annual overtime pay, or a total of $2.28 million, spent by the HR and financial departments.
  • Eliminated most of 22 HR forms that had been necessary to process every new employee hired in the 20,000-large staff, and thus saved $1.8 million in copier maintenance costs.
  • Improved hiring practices, thus eliminating the need for outside employment recruiters. In one instance, one recruiting firm charged the district $320,000.
  • Eliminated the need for an internal audit, which cost the HR department $400,000 a year but was published at least nine months after the fact.
  • Cut back on the physical space needs in the $21.50-a square-foot San Diego commercial real-estate market. Perhaps one of the largest reasons behind ERP success in schools is well-crafted Requests for Proposals, or RFPs, and the contracts that follow. And that's where consultants like Empower Solutions, the firm that oversaw San Diego's ERP implementation, and Capital Principles, also known as CP Assure, come in.
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CP Assure oversaw the recent ERP project in Fulton County, which came in both under budget and ahead of time (see "ERP That Works: Fulton County, Georgia"), thanks to careful crafting of vendor-client agreements. What's written into the contracts are specific time-frames with penalties should either side fail to meet its obligation.

"The likelihood of going over budget really depends on how you set up your RFP," says Bradford, whose CP Assure remains neutral during the course of the project, reporting to neither school administrators nor vendors (Fulton purchased SAP) but to the county. "You have to affix some kind of time horizon. You write it right into the contract. The client has a ticking clock going while making decisions on issues that come up as the contract is implemented." That way, the project stays on track—and on budget.

Real concerns remain

Security concerns continue to be an obstacle to the adoption of ERP systems, as district leaders remain reluctant to hand over sensitive student information and confidential test scores to a centralized-database business system.

But problems aren't limited to Web portal vulnerabilities. Considering the fact that 3 to 6 percent of corporate revenue is lost each year due to fraud, with additional losses through duplicate payments and employee malfeasance, ERP systems have a long way to go before their security is failsafe. In fact, it's the misappropriation of budgets or unauthorized spending (by authorized users!) that seem to be causing the most damage to ERP's reputation.

With real security concerns, significant expense, and the need for leadership, ERP is an imperfect solution. However, with districts increasingly shouldering data burdens similar to their private sector counterparts, it makes sense that the organization and efficiency offered by ERP systems might be well worth the investment in the long run.

Melissa Houston is managing editor at T&L.
Patrick Goggins is an intern for T&L.

Stats:
88,000 students
12,000 full-time employees
93 schools

ERP That Works:
Fulton County, Georgia

In 2006, the Fulton County School District in Georgia voted to implement an ERP system from SAP, and hired third-party Capital Principles Group to monitor the implementation with software consultants CIBER, Inc.

The new ERP system, to be completed in 2008, is a far cry from the legacy mainframe computers: the old technology was poorly managed—information had to be entered into a separate database for each department and departments didn't communicate well. The district looked to ERP for integration and functionality. With ERP, the information is entered into one massive database and can be shared by all departments.

Fulton County has managed to stay under budget and on time. The success is due to the use of third-party Capital Principles, which monitors both Fulton County and CIBER to make sure they stick to strict deadlines and stay under budget.

Before ERP, each department had its own separate database that only they could access. For example, the payroll had a database of all employees, including salaries and past pay stubs. The finance department allocated money to be spent on employees, but it was the payroll department that issued checks. "People were hired into positions that weren't part of the budget," says Charles Sipos, Fulton's executive director of IT.

With ERP, the two departments are linked to one database. Now, if someone is hired and there isn't enough money in the budget to support them, a red flag goes up in finance and the person isn't hired–the information travels across departments automatically because they are all connected to the same database.

What is Fulton's key to success? Sipos cites creating a strong, solid Request for Proposal as the crucial step in ensuring the ERP is successful: "We spent six months on the specifications so that we had a clear understanding of what we were doing and where we were going."

—PG

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